Shuttered St. Joe’s College clears final debt, settles Sodexo’s $1.3 million fraud lawsuit

Sodexo claimed in federal court that St. Joe’s leaders knew college was about to close, even as they allowed the food service company to renovate a campus student center

The campus of Saint Joseph's College in Rensselaer on Monday, Feb. 6, 2017. The college is suspending operations at the end of the semester due to financial issues.(Photo: Meghan Holden/Journal & Courier)

RENSSELAER, Ind. – One more lingering burden weighing on the rebirth of Saint Joseph’s College, which halted operations more than a year ago, was lifted Friday when the former, four-year liberal arts school announced it had settled a $1.3 million lawsuit filed by a food service company over renovations the college ordered even when it was on the verge of financial collapse.

Sodexo Group filed a federal suit in August, accusing St. Joe’s of fraud, fraudulent concealment and breach of contract, claiming that the college knew more than it was letting on in the summer of 2016 when the food service company was sinking $1.3 million into the school’s student center renovations in exchange for a 10-year management contract. Sodexo claimed in the lawsuit that it finished renovations weeks before St. Joe’s leaders, dealing with millions in debt and the threat of losing academic accreditation, announced in late 2016 that it would close after the spring 2017 semester.

In the suit – one frustrated St. Joe’s alumni had been watching closely to get to the bottom of why their alma mater closed with little warning – Sodexo seemed aimed to prove that the college’s leaders “knowingly and deliberately failed to disclose the facts” about St. Joe’s $27 million debt and deep tuition discounts offered to students to stave off dropping enrollment.

On Friday, Michael Kohlman, chief information officer at St. Joe’s, said the college had reached “an equitable agreement” with Sodexo to drop the lawsuit before it went to trial. The terms of the settlement, Kohlman said, were confidential.

“We’re settling the bill,” Kohlman said. “It’s greater than zero, but it’s not for the amount Sodexo was suing for.”

Attorneys for Sodexo, based in Indianapolis and Washington, D.C., did not immediately return calls seeking their side on the settlement.

Kohlman said that unlike a settlement in September, when St. Joe’s restructured its $27 million debt on a Farm Credit Services loan, the college will not have to give up any of its land holdings. That means St. Joe’s will keep its core campus along U.S. 231 in Rensselaer, the administrative building called Drexel Hall across the highway and thousands of acres in income-producing property known as the Waugh Farm in nearby White County.

Fr. Larry Hemmelgarn, chairman of the St. Joe’s board of trustees, said the Sodexo lawsuit was the last of the college’s potential debts, making Friday a significant milestone in efforts to revive the school in some fashion.

“It has been a huge challenge trying to plan for the future without having our debts resolved,” Hemmelgarn said in statement released by St. Joe’s. “Now we know what resources we have available as we work to rebuild programs for Saint Joseph’s College at Rensselaer. With the help of our alumni, we can now create a sustainable model for the future.”

Sodexo’s lawsuit claimed former St. Joe’s President Robert Pastoor and Spencer Conroy, the college’s former controller, knew of the school’s dire financial situation when they brought the company into the 10-year contract and the renovations. The suit claimed Sodexo officials had no way to tell that the college was in such a jam or had been deferring maintenance on the campus for years.

In February 2017, Pastoor told the J&C that St. Joe’s finances were no secret and that students, faculty, staff, alumni and the Rensselaer community should have heard the warnings he’d been giving about the college’s challenges.

That contention was roundly debated at the time, as alumni and others said they were blindsided when St. Joe’s trustees moved in late 2016 to close the college by the end of the school year. Pastoor left in spring 2017. Those with St. Joe’s ties have been digging around for better explanations ever since.

Kohlman dismissed the notion the St. Joe’s was anxious to avoid the Sodexo case for fear of revealing college secrets.

“I personally don’t see that as part of the calculus,” Kohlman said. “I think the sole motivation was truly finding some equitable number with Sodexo. We owed money to them. This put them in a place where they could be satisfied, and it put us in a place where, quite honestly, we felt we could move forward.”

In October, Fr. Barry Fischer, St. Joe’s rector and part of the 127-year-old school’s “Phoenix Team,” and Daniel Elsener, Marian University president, announced an agreement that puts the St. Joe name – along with $1.5 million in St. Joe scholarship money – toward a two-year college Marian plans to open in July 2019 near the Indianapolis campus.

The two-year school will be called Saint Joseph’s College of Marian University-Indianapolis.

Elsener and Fischer said at the time that depending on how that program does, Marian’s two-year degree efforts could take root on St. Joe’s Rensselaer campus at some point.

What’s next? Kohlman said St. Joe’s plans to outline a new capital campaign by the end of December. He said letters would go to alumni in the coming weeks.

Did the Sodexo settlement need to be done before that could happen?

“We really wanted it to be done,” Kohlman said.

"It’s not like we weren’t continuing to look at things like: What was the fundraising going to look like? What’s a capital campaign going to look like? What’s an organization plan going to be for this campus, and how do you fit that into the community?" Kohlman said. "That ambiguity of knowing we had one major, potentially organizational-killing debt out there, we didn’t want to move into a phase where we’re talking to alumni until we had all those off the checklist."

Reach Dave Bangert at 765-420-5258 or at dbangert@jconline.com. Follow on Twitter: @davebangert.